ESG is increasingly important for businesses across the world. As Patagonia’s CEO, Ryan Gellert, highlights, ‘we humans have created problems that threaten our very existence. To solve them, we will need all the levers of society.’ For Gellert, companies are the best tool to rectify this situation.
When businesses need to ‘do the right thing,’ the person in charge of decision-making or the CEO needs to maintain a balance between philosophy, personal beliefs and the objective of achieving maximum profitability. This has prompted a vision increasingly shared by consumers: businesses are morally obliged to contribute to social wellbeing and to act in order to make the world a better place.
The moral obligation of businesses
In the business world, the moral obligation of businesses used to be limited to respecting the law that governed transactions between organisations and individuals. However, this morality has been extended to respect all stakeholders, which is known as stakeholder theory.
This theory considers that company decisions generate wide-ranging effects. These affect different groups of people, both internal and external to the organisation. The objective is to avoid unwanted consequences. To prevent them from happening, the needs and rights of the individuals affected must be taken into account.
For this reason, there is now an ethical obligation in all areas of the business world. It can be seen in politics, decision-making, sales, pricing and also when interacting with staff, suppliers or contractors.
This vision, which was put forward by the philosopher Robert C. Solomon, considers that conflicts may appear between business, morality, and social wellbeing. When this happens, businesses must step up. In this way, moral obligations are created that aim to mitigate relevant problems, such as climate change.
What does ESG have to do with morality in business?
The concept of ESG can be translated as the moral duty of a business. In other words, it refers to the moral impact of a business’ activity, and particularly that of governance. In this sense, the double materiality of non financial factors needs to be considered. Nevertheless, it is necessary to respond to certain questions related to corporate governance. These need to look further than subjects related to business administration or the economy.
Vision and philosophical wisdom can offer solutions, shape ideas and create answers. At the end of the day, ethics is about defining whether concepts are correct or not. In addition, morality should not be forgotten. This consists of a company’s reputation or virtue, which is based on whether or not it shares the same values as society. For example, 80% of investors from Gen Z would take into account ESG when selecting companies to invest in.
The moral and social obligations of companies: 5 areas to consider
In order to properly associate morality and social obligations of business, one must act in five areas:
- Focus on stakeholders: it is necessary to go further than simply generating value for stakeholders. Businesses need to impact the different stakeholder groups, which they will achieve through developing a statement of purpose. It will be signed by the board of directors and will define how to create value for stakeholders.
- Account for social and environmental costs: the impact of climate, informal settlements and other related aspects must be accounted for. They represent the costs to be quantified, as investors may need them in their decision-making.
- End quarterly earnings: such an approach is counterproductive in the long term. Moreover, it does not help to account for environmental and social impacts.
- Seek regenerative solutions: it is necessary to determine the impact that a company generates in the use of natural resources. In this way, it will be able to innovate to achieve a net benefit in their use.
- Prioritise responsibility: companies must actively participate in the communities in which they operate. This strengthens their network, whilst also supporting social and civic institutions.
In short, ESG helps companies to go beyond their economic activity. Ethical reasoning will help them to resolve economic and social conflicts. In this way, they will be able to make better decisions to develop their strategies. Moreover, reporting and compliance with this matter is becoming a financial obligation, as it is synonymous with transparency. APlanet can help you to achieve it.
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